Mergers and Acquisitions in times of crisis: A strategy for companies to survive and prosper in difficult times
The inflationary crisis and the sharp rise in interest rates have affected many economies, leading companies to reassess their investment and growth strategies. In this context, mergers and acquisitions have become an effective solution for CEOs.
For several years, mergers and acquisitions (M&A) have been a powerful tool in the business world, especially for companies looking to expand their capabilities and remain viable in the marketplace. In times of crisis, transformation along with M&A are key parts of many companies’ response and recovery strategies, providing a road to complete a broad set of goals, even while navigating previously unknown paths.
Mergers and Acquisitions during the financial crisis
Looking back at the global financial crisis, there is evidence that companies that did a significant merger or acquisition during an economic downturn outperformed those that did not. It was shown that during the GFC (Global Financial Crisis), those companies that made acquisitions totaling at least 10% of their market capitalization from 2008 to 2010 had an average TSR (Total Shareholder Return) of 6.4 % from January 2007 to January 2008, compared to TSR of -3.4% for less active companies.
Why is a M&A strategy important in times of crisis?
During economic crises, businesses face various challenges, such as decreased demand for products or services, lack of liquidity, and intense competition. M&A can be an effective strategy to address these challenges and help companies survive some of the ways that M&A can be beneficial to companies in times of crisis.
In times of crisis, many businesses face financial difficulties and some may even be forced to close. Industry consolidation through mergers and acquisitions can help companies reduce competition and increase their market share. Particularly in industries where there are a large number of small players competing for a limited share of the market.
2.Diversification of products or services
During economic downturns, the demand for certain products or services can drop significantly. Companies can use mergers and acquisitions to diversify their portfolio of products or services and thus reduce their dependence on a single product or market, maintaining a constant flow of income even if one of these is affected by the crisis.
Mergers and acquisitions can help reduce operating costs. For example, if one company acquires another it can consolidate its operations and eliminate redundancies in areas of administration, marketing and logistics, reducing costs and improving operational efficiency.
4.Access to new markets and technologies
If a company that acquires another that possesses advanced technology, the acquiring company can incorporate that technology into its own products or services and improve its position in the market. Similarly, a company that acquires another in a foreign market can access new customers and growth opportunities across borders.
Over the years, mergers and acquisitions have helped companies navigate and overcome difficult times, making them an effective strategy at critical times, thanks to their ease of response and adaptability to the environment. At Fiduvalor we are experts in mergers and acquisitions, we help and advise companies to make the best decision.
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